Heterogenous wealth effects of minimum unit price on purchase of alcohol: Evidence using scanner data.

Anurag Sharma,Brian Vandenberg,Kathryn E Mccollister

doi:10.1371/journal.pone.0225538

Abstract

One of the key arguments given to oppose the “sin taxes” is that they are regressive in nature and place disproportionately higher cost on the poor thereby reducing their net wealth. The response to a reduction in net wealth attributed to tax can potentially have significant effects through an increase in alcohol purchase by heavy drinkers reinforcing or even offsetting the direct price or substitution effect of these taxes in reducing alcohol consumption. Comparatively little is known empirically about the net wealth effect associated with changes in alcohol tax policy, and this study aims to help fill this gap in the literature. In this study we aim to estimate how the wealth effects of introducing a minimum unit price (MUP) of A$2.00 per standard drink vary over the distribution (quantiles) of alcohol consumers. The data used in this study is a longitudinal panel of 1,395 households’ daily alcohol purchases (scanner data) recorded over a full year. Our analysis involves (i) quantile regression to estimate income elasticity over the distribution of consumption, and (ii) using these elasticities to estimate the potential wealth effects of a hypothetical change in alcohol prices from introducing an MUP policy. We control for consumer demographic characteristics, alcohol product prices and prices of close substitutes, and quarterly seasonal effects. We find that the estimated wealth effect from increasing the price of alcohol under a MUP policy is not significant at any point over the distribution of alcohol consumers. The policy increases per capita tax impact by less than A$5.00 per week for light/moderate consumers (50th—80th quantile) and decreases their daily per capita alcohol consumption by less than 0.02 standard drinks. Wealth effects attributable to an MUP policy are likely to be negligible. Substitution effects of the policy dominate the wealth effects in generating key health related outcomes such as reductions in alcohol consumption.

Highlights

A large body of scientific research in economics and public health consistently shows that alcohol taxation and pricing policies are among the most effective approaches for reducing overall consumption, heavy drinking, and alcohol related harm [1, 2]
The empirical analysis in this study uses an innovative method and unique scanner data to conclude that there are no significant wealth effects at any point over the distribution of alcohol purchases resulting from an increase in the price of cheap alcohol under a minimum unit price (MUP) policy
We show that despite concerns a MUP policy may have unfair impacts by disproportionately increasing the tax burden on light and moderate consumers compared to heavy consumers [21], the financial impacts would be negligible over the entire distribution

Summary

Introduction

A large body of scientific research in economics and public health consistently shows that alcohol taxation and pricing policies are among the most effective approaches for reducing overall consumption, heavy drinking, and alcohol related harm [1, 2]. There is increasing Australian and international evidence of “pre-loading” behaviour (drinking at home to achieve intoxication prior to drinking at licensed premises) that it is often motivated by the availability of relatively cheap off-premises alcohol [23]. This highlights the value of research using alcohol expenditure data that includes households’ off-premises alcohol purchases (i.e. taken away for consumption) as we have for this study

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Results

Conclusion